In recent weeks, Western audiences encountered two starkly different portraits of China’s economic model. In his book “Breakneck,” tech analyst Dan Wang argues that China is an “engineering state” that builds fast and learns by doing, a stark contrast to what he terms America’s stagnant “lawyerly society.” Separately, on the Lex Fridman Podcast, economist Keyu Jin described a highly decentralized, market-driven system – a “mayor economy” where local competition fuels innovation.
Both stories resonate because they offer compelling explanations for China’s eye-popping infrastructure, its dominance in solar and electric vehicles (EVs), and the United States’ own struggles to build. But both frames, in their elegance, obscure the critical mechanics of China’s growth machine: soft budget constraints that fuel wasteful investment, political tournaments among officials that enforce conformity, and top-down campaigns that can flip national policy overnight. Misreading these features doesn’t just warp economic analysis – it distorts the design of export controls, clouds supply-chain risk management and confuses how Indo-Pacific partners interpret Beijing’s intentions.
Dan Wang’s “engineering state,” detailed in his book, posits that China’s elite, historically dominated by engineers, defaults to construction as the solution for every problem. This framework vividly explains the country’s unparalleled capacity to build, creating vast networks of high-speed rail, gleaming airports, and massive ports in a fraction of the time it would take in the West.
In contrast, Keyu Jin argues that the greatest Western misconception is viewing China’s economy as a monolith run from the top down. In widely circulated interviews, including on the Lex Fridman Podcast, she describes a system that is politically centralized but economically decentralized. In this “mayor economy,” local officials compete fiercely to attract investment and drive GDP growth, creating a dynamic, bottom-up environment she claims is “more decentralized than the U.S. is.”
This narrative reassures a globalist audience that China’s success stems from familiar capitalist forces of competition and entrepreneurial ambition. It also provides the intellectual foundation for her policy advice: that aggressive U.S. tech controls and tariffs are “very distortionary” and ultimately self-defeating, as they only accelerate China’s push for indigenous innovation.
These frames are useful and memorable, but they create a false dichotomy. Wang sees the top-down directive state, while Jin emphasizes bottom-up competitive energy. The reality they both miss is a system where central directives actively structure the terms of local competition, channeling that energy toward state-defined goals.
An “Engineering State” Plagued by Waste and Abrupt Policy Shifts
The “engineering state” narrative mistakes the appearance of rapid construction for evidence of technical efficiency. A closer look reveals that this building spree is often enabled by political and financial structures that tolerate, and even encourage, immense waste.
As independent analyst Li Houchen pointed out, China’s rapid build-out is driven less by engineering rigor than by pervasive soft budget constraints. In this system, local governments and state-owned enterprises (SOEs) launch massive projects with the implicit assurance that higher authorities will bail them out if finances sour.
This expectation removes the discipline of the market, encouraging debt-fueled investment in infrastructure and industrial capacity aimed at meeting political targets rather than generating a viable economic return. It is this dynamic – not superior project management – that explains the proliferation of underused airports, “bridges to nowhere,” and the staggering levels of local government debt that Beijing is now struggling to contain.
Furthermore, the engineering analogy of steady, iterative progress is a poor fit for a system that frequently lurches forward through campaign-style governance. Major policy shifts in China are often executed as top-down political movements designed to mobilize the entire state apparatus to achieve a specific goal in a short period.
These campaigns are characterized by their “vigorous momentum” and reliance on political will, but they often lack sustainable, rules-based mechanisms and can be reversed just as quickly. The 2021 “double reduction” policy, which decimated the country’s $150 billion private tutoring industry overnight, is a prime example. Driven by high-level political concerns about social inequality and the rising cost of child-rearing, the crackdown was a political shockwave, not a technocratic adjustment. Such abrupt reversals are the antithesis of a rational engineering culture.
Central Incentivizes Control the “Mayor Economy”
By contrast, Jin’s “distributed market” narrative correctly identifies the intense energy of local competition but fails to analyze the centrally controlled incentive structure that channels this energy. The appearance of decentralization masks a deep-seated directive homogeneity.
The “mayor economy” is animated by what political economists call the “promotion tournament.” This theory explains that local officials are locked in a fierce competition for career advancement, which is determined by their performance on centrally defined Key Performance Indicators (KPIs).
For decades, the primary KPI was raw GDP growth, which unleashed a nationwide race to build industrial parks and attract investment. However, since 2013, the system has evolved. A comprehensive new mapping of China’s industrial policies from 2000 to 2022 confirms that top-down influence from the central government has strengthened significantly, forcing local policy choices into alignment.
This has resulted in KPI isomorphism: local governments now compete not by innovating unique strategies, but by slavishly implementing the same central priorities. When Beijing designates EVs, solar panels, or semiconductors as strategic sectors, nearly every province and city rushes to offer subsidies and land to attract firms in those exact industries.
The Cost of Getting China Wrong
The “engineering state” and “distributed market” narratives have become so popular in the West not just because they contain elements of truth, but because they serve a deeper psychological and political purpose. Wang’s frame offers a satisfyingly tangible explanation for China’s visible might, resonating with a Western public frustrated by its own infrastructure paralysis. Jin’s narrative provides a comforting story for global capital, framing China’s economy in the familiar, non-threatening language of markets and competition. Both tropes travel well because they offer legible binaries and clear, albeit contradictory, policy takeaways.
The danger lies in their simplification. When policymakers and elites adopt these flattened narratives, they risk lurching toward policy over-correction. The “engineering state” story can foster a romanticization of technocratic efficiency, leading to calls to emulate a system whose successes are inseparable from its drawbacks. Conversely, the “distributed market” narrative encourages a strategic naivete, downplaying the state’s directive power and the top-down legal framework that underpins its economic model.
These analytical misreadings have profound consequences for U.S. and allied policy in the Indo-Pacific.
On export controls, Jin’s argument that tight restrictions backfire by spurring Chinese import substitution contains a kernel of truth but misses the bigger picture. Evidence shows Chinese firms are indeed developing workarounds, such as Nvidia’s modified H20 AI chips, and accelerating domestic R&D. Yet, analysis from CSIS demonstrates that U.S. controls have successfully limited China’s access to frontier computing, degraded the performance of its AI models, and forced costly redesigns, effectively buying the U.S. and its ally’s valuable time.
A policy that overestimates China’s distributed, market-driven innovation (the Jin view) risks allowing critical technologies to leak. A policy that underestimates its state-directed capacity for mobilization (the Wang view) risks designing controls that are too easily circumvented.
For China’s regional partners, getting the model right is a matter of economic survival. Governments across the Indo-Pacific are attempting to navigate the complex currents of supply chain diversification, hoping to attract “China-plus-one” investments. For these nations, understanding China’s propensity for state-driven overcapacity surges in sectors like steel, solar, and EVs is critical. A stylized “distributed market” story offers false reassurance, suggesting that Chinese investments are driven by normal market logic.
A more accurate model – one that accounts for soft budgets and promotion tournaments – alerts them to the risk that a new Chinese factory could be the leading edge of a subsidized export wave designed to dominate their domestic market. This understanding is crucial for developing effective defensive tools.
Elegant stories about China’s economy can clarify – and mislead. The “engineering state” rightly spotlights tacit know-how and build speed but underplays the role of soft budgets and campaign governance in driving that activity. The “distributed market” perspective captures local entrepreneurial energy yet misses the directive homogeneity forged by cadre incentives and post-2013 centralization.
Policymakers in the United States and across the Indo-Pacific should retire this unhelpful binary and instead evaluate China’s economic statecraft through three practical questions focused on its core mechanics: Are the budgets hard? Is the tournament isomorphic? Is the sector campaign-proof?
Getting the model right will not just improve economic forecasts; it is a prerequisite for sound strategy. It will reduce the risk that Beijing’s preferred narratives shape global choices more than the underlying facts on the ground.